SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
|_| Soliciting Material Pursuant to Rule 14a-11(C) or Rule 14a-12
COVOL TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
(4) Date Filed:
- --------------------------------------------------------------------------------
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COVOL TECHNOLOGIES, INC.
3280 North Frontage Road
Lehi, Utah 84043
July 20, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of
Stockholders of Covol Technologies, Inc. (the "Company"), which will be held on
Thursday, August 27, 1998, at 1:00 p.m., Mountain Daylight Time, at the
DoubleTree Hotel at 255 South West Temple, Salt Lake City, Utah 84101. In
addition to the matters to be acted upon at the meeting, which are described in
the attached Notice of Annual Meeting of Stockholders and Proxy Statement, a
report will be given with respect to the operations of the Company.
Whether or not you plan to attend the meeting, please complete, date,
sign and return the enclosed proxy card or voting instruction form in the
accompanying envelope as promptly as possible to ensure that your shares are
represented and voted in accordance with your wishes.
Sincerely,
Brent M. Cook
Chief Executive Officer
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COVOL TECHNOLOGIES, INC.
3280 North Frontage Road
Lehi, Utah 84043
--------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, AUGUST 27, 1998
--------------------
To the Stockholders of Covol Technologies, Inc.:
The 1998 Annual Meeting of Stockholders (the "Meeting") of Covol
Technologies, Inc., a Delaware corporation (the "Company"), will be held on
Thursday, August 27, 1998, starting at 1:00 p.m., (Mountain Daylight Time), at
the DoubleTree Hotel, 255 South West Temple, Salt Lake City, Utah 84101, for the
following purposes:
1. To elect two Class I directors of the Company to serve until the
2001 annual meeting of stockholders, or until their successors are duly elected
and qualified;
2. To ratify the selection by the Board of PricewaterhouseCoopers, LLP
as independent auditors of the Company for the fiscal year ended September 30,
1998; and
3. To transact such other business as may properly come before the
Meeting and any and all adjournments or postponements thereof.
The Board has fixed the close of business on Monday, July 20, 1998, as
the record date for determining the stockholders entitled to notice of, and to
vote at, the Meeting. A complete list of stockholders entitled to vote at the
Meeting will be available, upon written demand, for examination during normal
business hours by any stockholder of the Company, for any purpose germane to the
Meeting, for a period of ten (10) days prior to the Meeting at the Company's
offices located at the address set forth above. Only stockholders of record as
of the record date are entitled to notice of, and to vote at, the Meeting and
any adjournments or postponements thereof. A copy of the Company's Annual
Report, a Proxy Statement and a proxy card accompany this notice. These
materials are first being sent to stockholders on or about August 3, 1998.
Stockholders are cordially invited to attend the Meeting in person.
However, to assure your representation at the Meeting, please complete and sign
the enclosed proxy card and return it promptly. If you choose, you may still
vote in person at the Meeting even though you previously submitted a proxy card.
By Order of the Board of Directors,
ASAEL T. SORENSEN, JR.
Secretary
Lehi, Utah
July 20, 1998
Your vote is important.
You are urged to date, sign and promptly return your proxy card so that your
shares may be voted in accordance with your wishes and that the presence of a
quorum may be assured. The prompt return of your signed proxy card, regardless
of the number of shares you hold, will aid the Company in avoiding the expense
of additional proxy solicitations. The giving of your proxy does not affect your
right to vote in person if you attend the meeting or your right to resubmit
later dated proxy cards.
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COVOL TECHNOLOGIES, INC.
3280 North Frontage Road
Lehi, Utah 84043
--------------------
PROXY STATEMENT
Annual Meeting of Stockholders
To Be Held on Thursday, August 27, 1998
--------------------
GENERAL INFORMATION
This Proxy Statement and the accompanying proxy card are being
furnished to the stockholders of record of Covol Technologies, Inc. (the
"Company"), in connection with the solicitation of proxies by and on behalf of
the Board of Directors of the Company (the "Board") for use at the Company's
1998 Annual Meeting of Stockholders (together with any and all adjournments or
postponements thereof, the "Meeting") which is scheduled to be held on Thursday,
August 27, 1998, starting at 1:00 p.m. (Mountain Daylight Time), at the
DoubleTree Hotel, 255 South West Temple, Salt Lake City, Utah 84101, for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders
(the "Notice"). This Proxy Statement, the Notice, the Company's Annual Report,
and the enclosed proxy card, are first being mailed to stockholders on or about
August 3, 1998. The Annual Report is not to be considered a part of the
Company's proxy solicitation materials.
PURPOSE OF ANNUAL MEETING
At the Meeting, stockholders will be asked: (i) to elect two class I
directors of the Company to serve until the 2001 annual meeting of stockholders,
or until their successors are duly elected and qualified; (ii) to ratify the
selection by the Board of PricewaterhouseCoopers, LLP as independent auditors of
the Company for the fiscal year ending September 30, 1998 ("Fiscal 1998"); and
(iii) to transact such other business as may properly come before the Meeting or
any adjournment or postponements thereof. If a quorum exists, directors will be
elected by a plurality of the votes of the shares of Company Common Stock, $.001
par value, (the "Common Stock") present in person or represented by proxy at the
meeting and entitled to vote on the election of directors. If a quorum exists,
action on item (ii) above will be approved by affirmative vote of the holders of
a majority of the shares of the Common Stock present or represented by proxy at
the Meeting and entitled to vote on such matters. The Board recommends a vote
"FOR" (i) the election of the two nominees for class I director of the Company
listed below; and (ii) the ratification of PricewaterhouseCoopers, LLP as
independent auditors of the Company for Fiscal 1998. The Board knows of no other
matters which are likely to be brought before the Meeting. If any other matters
properly come before the Meeting, however, the persons named in the enclosed
proxy, or their duly constituted substitutes acting at the Meeting, will be
authorized to vote or otherwise act thereon in accordance with their judgment on
such matters. If the enclosed proxy is properly executed and returned prior to
voting at the Meeting, the shares represented thereby will be voted in
accordance with the instructions marked thereon. In the absence of instructions,
executed proxies will be voted "FOR" the items listed in the Notice.
QUORUM, VOTING RIGHTS AND OTHER MATTERS
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Common Stock is necessary to constitute a quorum at
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the Meeting. Only stockholders of record at the close of business on Monday,
July 20, 1998 (the "Record Date"), will be entitled to notice of, and to vote
at, the Meeting. As of the Record Date, there were 10,559,266 shares of Common
Stock outstanding and entitled to vote at the Meeting. Holders of Common Stock
as of the Record Date are entitled to one vote for each share held. Holders of
Common Stock are not entitled to cumulative voting rights.
All shares of Common Stock represented by properly executed proxies
will, unless such proxies have previously been revoked, be voted in accordance
with the instructions indicated in such proxies. If no such instructions are
indicated, such shares will be voted in favor of (i.e., "FOR") the items listed
in the Notice. Abstentions will be counted as shares present for quorum
purposes, but otherwise will count as a vote against the applicable proposal.
Broker non-votes will be counted as shares present for quorum purposes, but
otherwise will not count for any purpose in determining whether a proposal has
been approved.
Any stockholder executing a proxy has the power to revoke such proxy at
any time prior to its exercise. A proxy may be revoked prior to exercise by (i)
filing with the Company a written revocation of the proxy, (ii) appearing at the
Meeting and casting a vote contrary to that indicated on the proxy or (iii)
submitting a duly executed proxy bearing a later date.
The cost of preparing, printing, assembling and mailing this Proxy
Statement and other material furnished to stockholders in connection with the
solicitation of proxies will be borne by the Company. In addition to the
solicitation of proxies by use of the mails, officers, directors and employees
of the Company may solicit proxies by written communication, telephone,
telegraph or personal call. Such persons are to receive no special compensation
for any solicitation activities. The Company will reimburse banks, brokers and
other persons holding Common Stock in their names, or those of their nominees,
for their expenses in forwarding proxy solicitation materials to beneficial
owners of Common Stock.
EXECUTIVE OFFICERS
The following table sets forth (i) the names of the executive officers,
(ii) their ages as of the Record Date and (iii) the capacities in which they
serve the Company:
Name Age Position(s) Officer Since
Brent M. Cook 38 Chief Executive Officer and 1996
Chairman of the Board
Stanley M. Kimball 44 President and Director 1997
Alan D. Ayers 41 Vice President of Administration 1996
Russell G. Madsen 52 Vice President 1992
George W. Ford 53 Principal Scientist / Vice President 1993
of Science and Technology
Steven R. Brown 40 Vice President of Synfuel 1995
Operations and Engineered Fuels
Max E. Sorenson 49 Vice President of Operations - 1997
Metallurgical
Harlan Hatfield 38 Vice President, General Counsel 1998
Dee J. "D.J." Priano 52 Vice President 1997
Steven Stewart 50 Chief Financial Officer 1998
Asael T. Sorensen, Jr. 44 Corporate Secretary 1995
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See "Proposal No. 1 -- Election of Directors - Nominees for Election as
Directors" for biographical information regarding Messrs. Cook and Kimball.
Alan D. Ayers has served as Vice President of Administration since October 1997,
and Chief Operating Officer from June 1996 until October 1997. Mr. Ayers served
as a director from June 1996 until resigning from the Board in February 1997 in
favor of establishing an outside Board. Mr. Ayers joined the Company in August
of 1995 as manager of the Company's investor relations department. From 1993 to
1995, Mr. Ayers was the General Manager for Taylor Maid Beauty Supply,
responsible for the operations of the regional supply company. From 1987 to
1993, he was Director of Operations for Knighton Optical, Inc. Mr. Ayers
received his M.B.A. from the University of Utah.
Russell G. Madsen has served as Vice President from August 1992 and a Director
of the Company from August 1992 to November 1996. Mr. Madsen also served as
interim Chairman from November 1996 until resigning from the Board in March 1997
in favor of establishing an outside Board. Mr. Madsen supervises the Company's
prototype briquetting plant in Price, Utah. Between 1981 and 1992, Mr. Madsen
was employed as an accounting manager by Coastal States Energy, a subsidiary of
Coastal Corporation. From 1984 to 1991, Mr. Madsen also was a Vice President and
Director of Specialized Mining Services, Inc., a mine support service company.
Mr. Madsen graduated from Utah State University with a B.S. degree in
Agricultural Economics and a minor in Business Management.
George W. Ford served as Vice President of Research and Development of the
Company from August 1993 through June 1998, and as Principal Scientist/Vice
President as Science and Technology. Mr. Ford served as a Director from August
1993 until resigning from the Board in February 1997 in favor of establishing an
outside Board. From 1982 to 1993, Mr. Ford was employed at Ballard Medical
Products, Inc. in research and development, principally in the biomedical field.
He holds 27 national and international patents covering a wide variety of
technologies. Mr. Ford has functioned as an independent consultant working on
projects in computer programming, medical product device design and process
polymer chemistry design for the energy industry. Mr. Ford is a member of the
American Association for the Advancement of Science, and the Iron and Steel
Society.
Steven R. Brown was appointed Vice President of Synfuel Operations and
Engineered Fuels in July 1998, and served as Vice President of Engineering and
Construction of the Company February 1995 through July 1998. Mr. Brown served as
a Director from September 1995 until resigning from the Board in March 1997 in
favor of establishing an outside Board. Mr. Brown was responsible for the
management of the Company's former construction company subsidiaries and
limestone quarry and subsequently oversaw the design and construction of the
Company's production facilities. He is currently responsible for the Company's
plant operations and for service to the 24 licensed synthetic fuel facilities.
From 1993 to 1995, Mr. Brown was President of Construction Management Service,
Inc. Mr. Brown is a licensed professional engineer and a licensed general
contractor. Mr. Brown obtained a B.S. degree in Civil Engineering and a Masters
of Business Administration from Brigham Young University.
Max E. Sorenson was appointed as Vice President of Metallurgical Operations in
July 1998, and has served as Vice President of the Company since April 1997. Mr.
Sorenson is currently responsible for development and application of coke, iron
and other metals-related opportunities. Prior to employment with the Company,
Mr. Sorenson was Senior Vice President Operations, Engineering and Technology at
Geneva Steel. Mr. Sorenson began his employment with Geneva Steel in October
1989. From 1973 to 1989, Mr. Sorenson was employed at Inland Steel Industries in
various research, operations and technology management positions including
Manager of Research and Development and Manager of Coke, Iron and Steel
Technologies. Mr. Sorenson obtained a B.S. degree in Metallurgical Engineering
from the University of Utah in 1973 and a Masters of Science degree in
Industrial Management from Purdue University in 1978.
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Harlan M. Hatfield has served as a Vice President and General Counsel since July
1998 and Corporate Counsel since October 1996. His primary activities with the
Company have been the development of synthetic fuel projects, including
licensing, financing, permitting, construction, feedstocks, site selection, and
other aspects of project development. As General Counsel he oversees the legal
staff and outside legal counsel, litigation, regulatory disputes, contracts, and
other legal matters. Prior to his employment with the Company, he was in private
practice at the Seattle law firm of Oles, Morrison and Rinker for more than nine
years where he was a partner. He established the firm's environmental practice
group and has experience in such fields as Superfund liability, underground
storage tanks, asbestos contamination, Clean Water Act permitting, and other
regulatory compliance matters. He also practiced extensively as counselor and
trial lawyer in construction, real estate, government contracts, and related
fields with successful results in trials, appeals, administrative hearings,
arbitrations, and mediations. Mr. Hatfield has been a frequent seminar speaker
and has authored numerous published articles including "Environmental Risks in
Construction Contracting" published in Construction Briefings by Federal
Publications. Mr. Hatfield received his law degree in 1987 from the University
of Minnesota and his B.A. from Brigham Young University in 1984.
Dee J. "D.J." Priano has served as Vice President of the Company since 1997. Mr.
Priano had been employed by Kennecott Corporation for more than 32 years prior
to that time. Mr. Priano worked in several different positions at Kennecott
including Principal Planning Engineer for Kennecott's Bingham Canyon mine, as
well as the Controller for Kennecott's U.S. Mines Division. In addition to
managing, general accounting and financial reporting activities, he was
responsible for the administration of purchasing, MIS and land and water
management functions. Mr. Priano received a BS degree and Master of Business
Administration from the University of Utah.
Mr. Steven Stewart was appointed Chief Financial Officer of the Company in July
1998, and served as Vice President Finance and Treasurer from May 1998 through
July 1998. As Chief Financial Officer, Mr. Stewart is responsible for all
accounting and finance functions, financial and SEC reporting and compliance,
banking relationships and risk management. From May 1973 through January 1994,
Mr. Stewart worked for "Big Six" international accounting firms in numerous
management capacities including 11 years as partner. From 1986 through January
1994 Mr. Stewart was an audit partner with Ernst & Young (formerly Arthur Young)
and was the Salt Lake City office Director of High Technology and Entreprenurial
Services. From January 1994 through September 1996, Mr. Stewart was
self-employed providing consulting services in addition to functioning as the
chief financial officer of a high technology company. During this time he
established strategic alliances for the high technology company with two Fortune
500 companies, advised companies on alternative valuation methods applicable to
acquisition targets and negotiated acquisition/sale transactions. From October
1996 through March 1998, Mr. Stewart was a business assurance partner at
PricewaterhouseCoopers, LLP (formerly Coopers & Lybrand L.L.P.), with primary
responsibility for public companies operating in the high technology, mining and
extractive industries. Mr. Stewart is a Certified Public Accountant in
California and Utah and received his B.S. degree in Accounting from Brigham
Young University in 1973.
Asael T. Sorensen, Jr. has served as the Company's Secretary since June 1996,
General Counsel from September 1995 through June 1998, and as Corporate Counsel
since July 1998. As Secretary and Corporate Counsel, Mr. Sorensen's primary
responsibilities include all legal aspects of securities issuance, filings and
compliance, contracts and financings, notice, attendance and record keeping for
all Board of Directors Meeting and Stockholders meetings. Mr. Sorensen also
serves as the Company's liaison with federal and state legislative and
regulatory representatives on matters of interest to the Company. From 1982 to
1995, Mr. Sorensen was an in-house attorney for The Church of Jesus Christ of
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Latter-Day Saints in Salt Lake City, Utah and practiced law primarily in the
area of contract negotiations and administration. Since 1987, Mr. Sorensen has
been a consultant with the American Management Association, a business seminar
and consulting non-profit organization headquartered in New York. Mr. Sorensen
graduated from Brigham Young University with a joint Juris Doctor and Masters of
Business Administration. He is admitted to practice law in the State of Utah.
EXECUTIVE COMPENSATION
The following sets forth the compensation paid by the Company for
services rendered by Brent M. Cook, the Company's Chief Executive Officer,
during the fiscal years ended September 30, 1996 and September 30, 1997. No
other executive officer received combined salary and bonus in excess of $100,000
during the most recently completed fiscal year.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term
Compensation
Restricted
Name and Other Annual Stock Stock All Other
Principal Position Year Salary($) Bonus($) Compensation($) Awards($) Options (#) Compensation($)
- ------------------ ---- --------- -------- --------------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Brent M. Cook (1) 1997 93,811 -- (3) 46,520(2) -- -- --
Chief Executive 1996 23,335 60,000 1,163,000(2) -- 40,000(2) --
Officer
</TABLE>
- ------------------
(1) Mr. Cook entered into an employment agreement dated June 1, 1996 to act
as Executive Vice President and Chief Financial Officer. Mr. Cook was
appointed as President and Chief Executive Officer in October of 1996,
and presently serves as Chief Executive Officer.
(2) Upon the execution of his employment agreement with the Company, Mr.
Cook received immediately exercisable options to acquire 100,000 shares
of the Common Stock at a price of $1.50 per share, upon which event
$1,163,000 of compensation expense was recorded by the Company. Mr.
Cook also received an option to acquire 40,000 shares of the Common
Stock at a price of $1.50 per share, which vests over 10 years. $46,520
reported for 1997 represents the vesting of 4,000 shares subject to the
latter options.
(3) Mr. Cook was awarded a performance based bonus of $50,000 in November
1997, which has been recorded as a bonus in fiscal year 1998 and,
accordingly, is not reflected in this table.
Other than the Company's 1995 Stock Option Plan, there are no
retirement, pension, or profit sharing plans for the benefit of the Company's
officers, directors and employees. The Company provides health, dental and life
insurance coverage for its employees. The Board of Directors may recommend and
adopt additional programs in the future for the benefit of officers, directors
and employees.
Option Grants in Fiscal Year 1997
No options were granted to the named executive officer in fiscal year
1997.
Aggregated Option Exercises and Year-End Option Values in 1997
The following table summarizes for the named executive officer of the
Company the number of stock options, if any, exercised during fiscal year 1997,
the aggregate dollar value realized upon exercise, the total number of
unexercised options held at September 30, 1997 and the aggregate dollar value of
in-the-money unexercised options held at September 30, 1997. Value realized upon
exercise is the difference between the fair market value of the underlying stock
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on the exercise date and the exercise price of the option. The value of
unexercised, in-the-money options at September 30, 1997 is the difference
between their exercise price and $9.25 per share, the fair market value of the
underlying stock on September 30, 1997, based on the last trade price of the
Common Stock on that date. The underlying options have not been and may never be
exercised. The actual gains, if any, on exercise will depend on the value of the
Common Stock on the actual date of exercise. There can be no assurance that
these values will be realized.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Fiscal Year 1997
and Year-End Option Values
Number of Value of Unexercised
Unexercised Options In-the-Money Options at
at 9/30/97(#) 9/30/97($)
Shares
Acquired on Value
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Brent M. Cook -0- $-0- 104,000 36,000 $806,000 $279,000
</TABLE>
Long-Term Incentive Plan ("LTIP") Awards in Fiscal Year 1997
The Company has no LTIP.
Future Benefits of Pension Plan Disclosure in Fiscal Year 1997
The Company has no such benefit plans.
Stock Option Plans
1995 Stock Option Plan. Under the Company's 1995 Stock Option Plan, as
amended (the "Option Plan"), 2,400,000 shares of Common Stock (900,000 shares in
June 1995 plus 1,500,000 approved by shareholders in January 1996) are reserved
for issuance upon the exercise of stock options. The Option Plan is designed to
serve as an incentive for retaining qualified and competent employees, directors
and consultants. During fiscal year 1997, the Company issued options under the
Option Plan to acquire 280,000 shares of Common Stock to 10 employees. Of the
options to purchase 280,000 shares, Mr. Dee J. Priano was issued options to
purchase 100,000 shares at an exercise price of $8.25 per share and nine
employees were issued options to purchase an aggregate of 180,000 shares at an
exercise price of $8.25 per share. Out of the nine employees, Messrs. Kimball
and Sorenson each received options to purchase 50,000 shares. As of September
30, 1997, options to purchase an aggregate of approximately 1,180,000 shares of
Common Stock were issued under the Option Plan, of which 900,000 have been
exercised.
A committee of the Company's Board of Directors, or in its absence, the
Board (the "Committee") administers and interprets the Option Plan and is
authorized to grant options and other awards thereunder to all eligible
employees of the Company, including officers and directors (whether or not
employees) of the Company. The Option Plan provides for the granting of both
"incentive stock options" (as defined in Section 422 of the Code) and
non-statutory stock options. Options can be granted under the Option Plan on
such terms and at such prices as determined by the Committee, except for the per
share exercise price of incentive stock options which will not be less than the
fair market value of the Common Stock on the date of grant and, in the case of
an incentive stock option granted to a 10% stockholder, the per share exercise
price will not be less than 110% of such fair market value. The aggregate fair
market value of the shares of Common Stock covered by incentive stock options
granted under the Option Plan that become exercisable by a grantee for the first
time in any calendar year is subject to a $100,000 limit.
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Options granted under the Option Plan will be exercisable after the
period or periods specified in the option agreement. Options granted under the
Option Plan are not exercisable after the expiration of ten years from the date
of grant and are not transferable other than by will or by the laws of descent
and distribution.
Other Options. In addition to options issued under the Option Plan, the
Company has granted options to executive officers, employees and directors
outside the Option Plan that were not qualified for tax purposes, all as set
forth below in more detail.
The following table sets forth information with respect to such options
granted to the Company's executive officers and directors during fiscal year
1997:
Number of Exercise
Name Options Price
---------------------- ------------ ------------
Stanley M. Kimball 50,000 $1.50
Max E. Sorenson 50,000 $1.50
Vern T. May 2,500 $1.50
Raymond J. Weller 2,500 $1.50
DeLance W. Squire 2,500 $1.50
John Hill 2,500 $11.50
James A. Herickhoff 2,500 $9.00
Employment Contracts and Termination of Employment and Change in Control
Arrangements
Brent M. Cook. As of April 21, 1998, the Company and Mr. Brent M. Cook
entered into an employment agreement for Mr. Cook covering the succeeding five
year term, with salary to be established by the Board of Directors consistent
with an annual compensation review of comparable positions of public companies.
The employment agreement further provides for participation in the Company's
incentive bonus plan, if any, as in effect from time to time, expense
reimbursement, and the grant of stock options. Specifically, the employment
agreement provides for the grant of options for 250,000 shares of Common Stock
at an exercise price of $12 31/32 per share, to vest pro rata at the beginning
of each month during the term of the employment agreement, with full vesting
upon disability or death. Under the employment agreement, Mr. Cook is also
entitled to six weeks paid vacation, $550 per month automobile allowance, a
dental allowance of $4,500 per year, and other benefits comparable to those
generally available to Company employees.
Max E. Sorenson. The Company entered into an employment agreement,
dated March 20, 1997, with Max E. Sorenson to act as Vice President. The
employment agreement extends for a period of three years unless terminated by
the Company for cause or death, or by the employee for certain Company actions
which constitute good cause or without good reason provided 60 days prior
written notice is given. During the first, second and third twelve month period,
Mr. Sorenson's regular monthly salary will be $6,667 ($80,004 annualized),
$10,833 ($129,996 annualized) and $10,833 ($129,996 annualized) respectively.
Mr. Sorenson is entitled to receive a bonus pursuant to the Company's bonus
plan, if any, in effect from time to time. Further, under his employment
agreement, Mr. Sorenson was issued stock options to purchase 50,000 shares of
Company Common Stock at a purchase price per share of $1.50, vesting 25,000
immediately, 12,500 and 12,500 at the end of the first and second twelve month
period of employment, respectively. Additionally, Mr. Sorenson receives a
monthly car allowance of $550, received a signing bonus of $50,000, and may
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receive termination benefits at the expiration of the employment agreement
(whether or not Mr. Sorenson is offered employment by the Company after the
three years) equal to the sum of one year's annual wages. In addition, Mr.
Sorenson received options to acquire 50,000 shares of Common Stock under the
Option Plan (as defined above).
Stanley M. Kimball. The Company entered into an employment agreement,
dated January 1, 1997, with Stanley M. Kimball to act as Vice President and
Chief Financial Officer. The employment agreement extends for a period of three
years unless terminated by the Company for cause or disability, or by the
employee for certain Company actions which constitute good reason or without
good reason provided 90 days prior written notice is given. Mr. Kimball is
entitled to an annual base salary of at least $80,000. However, the agreement
provides that Mr. Kimball's base salary shall be in line with the salary paid to
the President and Chief Executive Officer of the Company. Effective June 1997,
Mr. Kimball's annual base salary was increased to $100,000. Mr. Kimball was
issued stock options to purchase 50,000 shares of Company Common Stock at a
purchase price per share of $1.50, vesting on a pro rata basis over two years
commencing January 1, 1997 and ending December 31, 1998. Additionally, Mr.
Kimball receives a monthly car allowance of $550 and is entitled to termination
benefits equal to 200% of the then current annual base salary if Mr. Kimball's
employment is terminated by the Company without cause or terminated by Mr.
Kimball for good reason. In addition, Mr. Kimball received options to acquire
50,000 shares of Common Stock under the Option Plan (as defined above).
Steven G. Stewart. The company entered into an employment agreement
with Mr. Stewart effective May 1, 1998 as the Vice President of Finance and
Treasurer. The employment agreement extends for a period of three years unless
terminated by the Company for cause or death, or by the employee for certain
Company actions which constitute good cause or without good reason provided 90
days prior written notice is given. Mr. Stewart's regular monthly salary will be
at least $6,667, $8,334 and $10, 415 for the twelve month period from April 1
1998 through 1999, 2000 and 2001, respectively. Mr. Stewart is entitled to
receive a bonus pursuant to the Company's bonus plan, if any, in effect from
time to time with a minimum quarterly bonus of $5,000.00. Mr. Stewart was issued
stock options to purchase 50,000 shares of Company Common Stock at a price of
$12.625, vesting on a pro rate basis over 60 months beginning May 1, 1998 and
are exercisable through April 30, 2008. In addition, Mr. Stewart receives a
monthly car allowance of $550 and if employment is terminated by the Company
without cause or terminated by Mr. Stewart for good reason he is entitled to
termination benefits equal to 200% of his then annual base salary and all
outstanding options vest immediately.
Board Meetings
The Board held a total of eleven regular meetings during fiscal year
1997 and one special meeting during fiscal year 1997. All directors attended
over 75% of the aggregate number of the regular meetings of the Board.
Committees Of The Board
On September 9, 1997, the Board of Directors established an Audit
Committee and a Compensation Committee. The Compensation Committee then
consisted of Mr. May, as chair, and Mr. Weller. On June 9, 1998, Mr. Herickhoff
was appointed to the Compensation Committee to fill the vacancy created by the
resignation of Mr. May. The Audit Committee consists of Mr. Herickhoff, as
chair, Mr. Squire, and Mr. Hill. The board elected to organize the Compensation
Committee and Audit Committee solely with outside directors. The Audit Committee
held its first meeting on December 16, 1997. The Compensation Committee did not
hold any meetings in fiscal year 1997.
8
<PAGE>
Compensation Committee Report on Executive Compensation
On September 9, 1997, the Company established a Compensation Committee
consisting of two members of the Board of Directors. The Compensation Committee
is responsible for overseeing the institution of compensation relating to the
Company's officers and key personnel, including the named executives. In the
past, because of cash flow concerns of the Company, the Compensation Committee
has not implemented changes in the Company's compensation structure. Future
compensation polices will be dependent on the Company's cash flow and employee
performance.
The Committee is currently reviewing compensation guidelines and is
considering retention of an outside company to recommend and bid on compensation
and benefit services. Any program recommended will consider factors such as
current competitive market compensation, growth of the Company and overall
business conditions as part of the total benefit package for employees.
The Compensation Committee strives to ensure that the Company's
compensation plan attracts, retains and rewards both staff and management
personnel while continuing to operate in the best interests of the stockholders.
Compensation Committee,
Vern T. May, Chairman
Raymond J. Weller
January 5, 1998
Compensation of Directors
The Company's directors hold office until the end of their respective
terms or until their successors have been duly elected and qualified. On June
22, 1998, each of the Company's directors, other than those who are salaried
employees of the Company, received options for shares of the Common Stock,
exercisable at the closing bid price of the Common Stock as of that date, in the
amount of 1,000 shares for each director for each month of service of the
director as such, from and including November, 1996 through and including July,
1998, for a maximum 21,000 shares for each director. Options for shares
representing months of service following the date of grant vest for each
director if the service of the director as such continues through such month.
Except for the directors of the Company who are presently salaried employees of
the Company and the Chairman of the Board, the directors are entitled to annual
cash compensation of up to $32,000, of which $20,000 represents an annual
retainer, and $12,000 is earned by attendance at 75% or more of the meetings of
the Board of Directors. From and after the Meeting, each director, other than
the directors of the Company who are presently salaried employees of the Company
and the Chairman of the Board, shall receive on the day following each of the
Company's annual meetings of stockholders, an option for 12,000 shares of Common
Stock, exercisable at the closing bid price of the Common Stock on that date, to
vest in monthly increments of 1,000 shares over the following year of service.
The Chairman of the Board, unless a salaried employee of the Company, is
entitled to cash compensation and options subject to similarly proportionate
payment and vesting terms, but in the amount of 125% of that which may be
received by the other directors. Directors receive reimbursement for
out-of-pocket expenses.
The Company's executive officers are elected annually by the Board of
Directors and serve at the discretion of the Board. Officers serve at the will
of the Board of Directors. The authority of the Board of Directors over the
officers of the Company has been delegated to the Chief Executive Officer.
9
<PAGE>
Stockholder Return Performance Graph
Federal regulations require the inclusion of a line graph comparing the
yearly percentage change in the Company's cumulative total stockholder return on
the Common Stock with the cumulative total return, assuming reinvestment of
dividends, of (1) the NASDAQ Composite Index and (2) a published industry or
line-of-business index. The comparison assumes $100 was invested on September
30, 1994. The performance comparison appears below.
The Board of Directors recognize that the market price of stock is
influenced by many factors, only one of which is Company performance. The stock
price performance shown on the graph is not necessarily indicative of future
price performance. The Company has not paid dividends on its Common Stock.
Comparison of Cumulative Total Return
[GRAPHIC OMITTED]
Total Returns Assume Reinvestment of Dividends
9/30/94 9/30/95 9/30/96 9/30/97
--------- --------- --------- --------
COVOL $100 $230 $265 $296
S&P ENERGY COMPOSITE 100 120 150 220
NASDAQ COMPOSITE (US) 100 137 161 221
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES
AND PRINCIPAL STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of July 20, 1998,
regarding the beneficial ownership of the Company's Common Stock, for: (i) each
person (or group of affiliated persons) who, insofar as the Company has been
able to ascertain, beneficially owned more than 5% of the outstanding shares of
10
<PAGE>
Common Stock; (ii) each director and named executive officer of the Company; and
(iii) all directors and executive officers of the Company as a group. The
Company has relied on information received from each stockholder as to
beneficial ownership, including information contained on Schedules 13D and Forms
3, 4 and 5. As of July 20, 1998, there were 10,559,266 shares of Common Stock
outstanding. As of that date, there were outstanding options to purchase
2,340,250 shares of Common Stock, of which 955,952 were vested, there were
outstanding warrants to purchase 1,967,420 shares of Common Stock, of which
1,327,398 were in the money, and there were outstanding shares of preferred
stock convertible into 741,453 shares of Common Stock.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner (1) Beneficial Ownership(2) Percent of Class
-------------------- ----------------------- ----------------
<S> <C> <C>
PacifiCorp Financial Services, Inc. 1,027,000 9.73%
775 NE Multnomah, Suite 775
Portland, Oregon 97232
AJG Financial Services, Inc. 573,186(3) 5.22%
The Gallagher Centre
Two pierce Place
Itasca, Illinois 60143
Directors
Brent M. Cook 128,833(4) 1.22%
Stanley M. Kimball 85,797(5) *
Raymond J. Weller 295,215(6) 2.78%
DeLance W. Squire 23,500(7) *
James A Herickhoff 15,500(8) *
John P. Hill, Jr. 14,500(9) *
Executive Officers
Alan D. Ayers 56,583(10) *
George W. Ford, Jr. 129,200(11) 1.22%
Steven R. Brown 105,683(12) 1.00%
Russell G. Madsen 447,461(13) 4.22%
Max E. Sorenson 54,583(14) *
Dee J. Priano 51,583(15) *
Asael T. Sorensen, Jr. 100,424(16) *
Harlan Hatfield 35,050(17) *
Steven Stewart 4,167(18) *
All directors and executive officers 1,548,579 14.67%
as a group (Fifteen (15) persons)
- ------------------
</TABLE>
* Less than 1%
(1) Unless otherwise indicated, the address of each person named in the
table is c/o the Company, 3280 North Frontage Road, Lehi, Utah 84043.
11
<PAGE>
(2) The persons named in this table have sole voting and investment power
with respect to all shares of Common Stock reflected as beneficially
owned by them. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within sixty (60) days
from July 20, 1998, and the total outstanding shares used to calculate
each beneficial owner's percentage includes such shares. Beneficial
ownership as reported does not include shares subject to options that
are not exercisable within 60 days of the reported date.
(3) Consists of 140,642 shares owned by AJG Financial Services, Inc., and
warrants for 216,272 shares exercisable at $10 per share, and warrants
for an additional 216,272 shares exercisable at $20 per share.
(4) Consists of 2,500 shares owned by Mr. Cook and options to purchase
126,333 shares held by Mr. Cook which are currently exercisable.
(5) Consists of 6,200 shares owned by Mr. Kimball and options to purchase
79,597 shares held by Mr. Kimball which are currently exercisable. Lee
Kimball, the son of Mr. Kimball, owns 250 shares of which Mr. Kimball
disclaims beneficial ownership.
(6) Consists of 253,965 shares owned by Mr. Weller and options to purchase
41,250 shares held by Mr. Weller which are currently exercisable.
(7) Consists of 2,500 shares of Common Stock of the Company owned by Mr.
Squire and options to purchase 21,000 shares held by Mr. Squire which
are currently exercisable.
(8) Consists of options to purchase 15,500 shares held by Mr. Herickhoff
which are currently exercisable.
(9) Consists of options to purchase 14,500 shares held by Mr. Hill which
are currently exercisable.
(10) Consists of 40,000 shares owned by Mr. Ayers, 1,700 shares owned by Mr.
Ayers' individual retirement account, 800 shares owned by Mr. Ayers'
spouse and options to purchase 14,083 shares held by Mr. Ayers which
are currently exercisable.
(11) Consists of 114,200 shares owned by Mr. Ford and options to purchase
15,000 shares held by Mr. Ford which are currently exercisable.
(12) Consists of 86,100 shares owned by Mr. Brown and options to purchase
19,583shares held by Mr. Brown which are currently exercisable.
(13) Consists of 384,640 shares owned by Mr. Madsen, 213 shares owned by Mr.
Madsen's spouse, 12,608 shares owned by Mr. Madsen's individual
retirement account, and options to purchase 50,000 shares held by Mr.
Madsen which are currently exercisable. Melissa Baker, the daughter of
Mr. Madsen, and her husband own 526 shares of which Mr. Madsen
disclaims beneficial ownership.
(14) Consists of options to acquire 54,583shares held by Mr. Max E. Sorenson
which are currently exercisable.
(15) Consists of options to acquire 51,583 shares held by Mr. Priano which
are currently exercisable.
12
<PAGE>
(16) Consists of 44,450 shares owned by Mr. Asael T. Sorensen, 38,474 shares
owned by Mr. Sorensen, his wife and his children in trust, and options
to purchase 17,500 shares held by Mr. Sorensen which are currently
exercisable.
(17) Consists of options to purchase 35,050 shares held by Mr. Hatfield
which are currently exercisable.
(18) Consists of options to purchase 4,167 shares held by Mr. Stewart which
are currently exercisable.
TRANSACTIONS WITH RELATED PARTIES
PacifiCorp. During fiscal year 1997, the Company entered into various
transactions with PacifiCorp Financial Services, Inc. and certain of its
affiliates ("PacifiCorp"). The transactions include (i) the Alabama Purchase
Agreement, (ii) the PacifiCorp Convertible Loan Agreement and related
agreements, and (iii) the PacifiCorp licenses.
(i) Alabama Purchase Agreement. The Company, through Alabama Synfuel
#1, Ltd., a Delaware limited partnership ("AS #1"), constructed the Alabama
Plant in Birmingham, Alabama. The plant manufactures synthetic fuel from coal
and is expected to have an annual capacity of approximately 360,000 tons.
Pursuant to the Alabama Project Purchase Agreement, dated as of March 20, 1997
(the "Alabama Purchase Agreement"), between the Company, AS #1 and Birmingham
Syn Fuel, L.L.C. ("BSF") a wholly-owned subsidiary of PacifiCorp Financial
Services, Inc. (together with any affiliates, "PacifiCorp"), the Company and AS
#1 agreed to sell, and BSF agreed to buy the Alabama Plant, subject to the terms
and conditions of the Alabama Purchase Agreement. Such sale was completed on
February 20, 1998 for $6,500,000. (see "Item 1. BUSINESS - Business of the
Company - - Alabama Plant" in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1998 (the "10-K")).
(ii) Pacific Corp Convertible Loan Agreement. In late July 1996, the
Company negotiated with PacifiCorp the general terms of the sale of the Alabama
Plant, including an arrangement for convertible debt in the amount of up to
$5,000,000 to fund working capital and construction costs needed to complete the
Alabama Plant. At the time of these negotiations, the Company agreed to a
conversion price of $7 per share, the trading price of the Company's stock at
the time the deal was initially negotiated. The actual documents completing this
agreement were not finalized until March 20, 1997. The Convertible Loan
Agreement was subsequently amended December 12, 1997, increasing the amount
available under the loan to $7,000,000. As of March 3, 1998, the Company had
borrowed $6,686,473 under this loan and interest of $313,527 had accrued. On
March 3, 1998, PacifiCorp exercised its option to convert the full amount of
$7,000,000 under this loan into 1,000,000 shares of common stock (conversion at
$7.00). In addition, another 27,000 shares were issued pursuant to anti-dilution
provisions of the loan agreement. (See "Item 7. MANAGMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - - Liquidity and
Capital Resources" in the 10-K).
(iii) PacifiCorp Licenses. In addition to the license agreement between
the Company and BSF, in December 1996, PacifiCorp entered into binding
agreements with a third-party contractor for the construction of six additional
facilities. Each facility is designed to manufacture approximately 360,000 tons
annually. The Company entered into a license agreement with PacifiCorp for the
use of the Briquetting Technology at the six facilities subject to the
construction agreements. PacifiCorp subsequently announced the construction of
only three facilities, which included a double-line synthetic fuel processing
facility located in Walker County, Alabama and a single-line facility located in
Tuscaloosa County, Alabama, which construction was completed on or about June 1,
1998. In connection with the construction of these three facilities, the Company
agreed to indemnify the contractor if the facilities were not completed by June
1, 1998 and the contractor incurred liquidated damages of as much as $750,000
per facility. Under the terms of the license agreement, PacifiCorp owes
13
<PAGE>
$1,000,000 in advance license fees. PacifiCorp will pay a quarterly license fee
at a prescribed amount (subject to possible adjustment) times the British
Thermal Units ("Btu") of product produced and sold during the calendar quarter.
The Company will also provide binder at its cost plus a prescribed mark-up. In
October 1997, PacifiCorp determined that it was not going forward with the
remaining three facilities for which it entered into binding contracts in 1996.
Gallagher. During fiscal year 1997, the Company entered into various
transactions with Arthur J. Gallagher & Company and certain of its affiliates
("Gallagher"). The transactions include (i) the Utah Purchase Agreement, (ii)
the Gallagher Senior Debentures and Subordinated Debentures and (iii) the
Gallagher licenses.
(i) Utah Purchase Agreement. The Company, through Utah Synfuel #1,
Ltd., a Delaware limited partnership ("US #1"), constructed the Utah Plant in
Price, Utah. The Utah Plant is a synthetic fuel briquetting facility with a
production capacity of approximately 360,000 tons per year. On March 10, 1997,
the Company, together with US #1, finalized the sale of the Utah Plant to
Coaltech for $3,500,000, in the form of a nonrecourse promissory note, all in
accordance with a Utah Project Purchase Agreement, dated as of March 7, 1997,
between the Company, US #1 and Coaltech. The purchaser of the Utah Plant,
Coaltech, is owned by AJG Financial Services, Inc., a Delaware corporation and
wholly-owned subsidiary of Gallagher ("AJG"), and Square D Company, a Delaware
corporation and wholly-owned subsidiary of Groupe Schneider, as 24% and 75%
limited partners, respectively, and the Company as a 1% general partner. The
Company contracted with Coaltech to act as operator of the facility for a
quarterly fee based upon the amount of briquettes produced and sold per year.
Moreover, the Company granted Coaltech a put option to require the Company to
purchase from Coaltech the Utah Project if (i) all of the Coaltech limited
partners are unable to utilize the federal income tax credits under Section 29
of the Code, (ii) the economic benefits accruing to or experienced by all of the
Coaltech limited partners differ significantly from what was initially
projected, or (iii) there is a permanent force majeure or material damage or
destruction of the Utah Plant.
As part of the sale of the Utah Plant, the Company and US #1 entered
into a Supply and Purchase Agreement with Coaltech. Under the agreement, the
Company agreed to provide coal fines to the Utah Plant for processing into
synthetic fuel at an amount equal to the Company's per ton costs (including any
wash costs). Furthermore, US #1 agreed to purchase from Coaltech the synthetic
fuel produced at its cost plus one dollar per ton. Because the Company
experienced problems with providing clean coal fines, the Utah Plant has
operated at well below its capacity, processing approximately 18,000 tons of
synthetic fuel all of which had a relatively high level of ash and most of which
has not been sold. Accordingly, the Company incurred a loss on the production of
synthetic fuel product at the Utah Plant. In an attempt to remedy this problem,
the Company has constructed a wash plant to provide washed coal fines to the
Utah Plant for the manufacture of synthetic fuel. The construction is being
financed through Gallagher. The total estimated cost for the wash plant is
approximately $7,300,000. As of July 20, 1998, the Company had borrowed
$4,325,433. The financing is evidenced by a promissory note executed and
delivered by the Company to Gallagher and is secured by the wash plant. The note
currently bears interest at 6% per annum with principal and interest due and
payable two years from the time the debt was incurred. As additional
consideration to Gallagher for financing the wash plant, the Company agreed,
subsequent to fiscal 1997, to grant Gallagher warrants equal to 10% of the
amount financed. Accordingly, 432,544 Warrants for shares of the Company common
stock with fifty percent of the shares having a purchase price of $10 per share
and fifty percent of the shares having a purchase price of $20 per share were
issued to AJG. The warrants are immediately exercisable and expire in two years.
(See "ITEM 1. BUSINESS- Utah Plant," "ITEM 1. BUSINESS--Supply of Coal
Fines--NEICO Fines Purchase" and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION" in the Company's 10-K).
14
<PAGE>
During the quarter ended March 31, 1998, the Company entered into an
additional agreement with AJG to borrow up to $6.5 million at an interest rate
of 6% per annum to be used for construction of a briquetting facility located in
West Virginia. As of July 20, 1998 the Company had borrowed $6,500,000 under
this agreement. The loan is due in full February, 2001.
(ii) Gallagher Senior Debentures and Subordinated Debentures. In
December 1996, the Company entered into a Debenture Agreement and Security
Agreement with "Gallagher," whereby the Company borrowed $1,100,000, pursuant to
a Convertible Subordinated Debenture accruing interest at 6% per annum and
maturing three years from its date of issuance (the "Subordinated Debenture")
and $2,900,000 pursuant to Senior Debentures accruing interest at prime plus two
percent (2%) and maturing three years from the date of issuance (the "Senior
Debenture"). The Subordinated Debenture (including accrued interest) was
converted to 140,642 shares of the Company's common stock on May 5, 1997. The
Company has granted piggy-back and demand registration rights to Gallagher for
the Company common stock issued on conversion of the Subordinated Debenture. The
Senior Debentures are collateralized by all real and personal property purchased
by the Company with the proceeds of the Senior Debenture. The proceeds of the
Subordinated Debenture and the Senior Debenture were used to satisfy contractual
obligations of the Company, for working capital and to purchase equipment used
to construct coal briquetting facilities to be managed and/or sold by the
Company or affiliates of the Company.
(iii) Gallagher licenses. In connection with the execution and delivery
of the Utah Purchase Agreement, US #1 granted Coaltech a non-exclusive
sublicense of the Company's patented briquette manufacturing technology (the
"Briquetting Technology") all pursuant to a License Agreement, dated as of March
7, 1997, by and among US #1 as licensor, the Company as vendor, and Coaltech as
licensee and vendee (the "Utah License Agreement"). Under the Utah License
Agreement, US #1 received an advance license fee of $1,400,000, included in
deferred revenue as of September 30, 1997, and depending upon the amount of
briquettes that are produced and sold as "qualified fuels" under Section 29 of
the Code, US #1 may receive an earned license fee payable quarterly. Also, in
December 1996, Gallagher entered into binding contracts with a third-party
contractor for the construction of four facilities in addition to the Utah
Plant, all of which are now complete. Each facility has an estimated capacity of
360,000 tons annually. The Company entered into a license agreement with
Gallagher to utilize the Briquetting Technology at the four facilities. Under
the terms of the license and other financing agreements with the Company,
Gallagher will pay an advance license fee in the amount of $500,000 for each
facility, subject to certain conditions, and will pay a prescribed amount of
royalty each quarter (subject to annual adjustment for inflation), based on the
Btu content of the product produced and sold during the quarter. The Company
will supply binder to the four facilities at an amount equal to cost plus an
agreed upon mark-up. The earned license fee is based upon the product of an
established dollar amount multiplied by the Btu content of the briquettes
manufactured and sold. The Company cannot predict with any certainty the amount
of ongoing license fees that may be generated. (See "ITEM 1. BUSINESS--Business
of Company-- Utah Plant, License Agreements" in the 10-K).
Trans Pacific Stores, Ltd. ("TPS"). On March 17, 1998, the Company
entered into a loan agreement in which Trans Pacific Stores, Ltd. agreed to loan
the Company up to $4,000,000. The loan is secured by future earned license fees
payable to the Company resulting from the synthetic fuel manufacturing
facilities constructed by Pace Carbon Fuels, LLC. Interest on the outstanding
principal balance accrues at twelve percent (12%) per annum. The interest rate
is adjusted to thirteen (13%) on September 20, 1998 and to fourteen percent
(14%) on December 20, 1998. Each time the interest rate is adjusted, a one
percent (1%) renewal fee of $40,000 is due and payable. Interest on the unused
portion of the borrowing will accrue at one percent (1$) per annum until the
loan is paid in full. The balance and interest is due in full before March 20,
1999. As of July 20, 1998, 4,000,000 had been borrowed under this arrangement.
On June 12, 1998, the Company entered into an additional loan agreement in which
TPS agreed to loan the Company up to $4,000,000. The loan is secured by a
certain promissory note as amended between the Company and Gerald Larson and
future cash flows payable to the Company resulting from the synthetic fuel
15
<PAGE>
manufacturing facilities constructed and owned by A.T. Massey. Interest on the
outstanding principal balance accrues at eighteen percent (18%) per annum, on
the four month anniversay the interest is adjusted to twenty two (22%) per
annum. Interest on the unused portion of the borrowing will accrue at one
percent (1$) per annum until the loan is paid in full. The unpaid prinicpal
amount owing and any interest accrued shall be due and payable June 12, 1999. As
of July 20, 1998, $2,000,000 had been borrowed under this arrangement. John A.
Hill, Jr., a member of the Company's Board of Directors, is the president of
TPS.
Extension of Warrants. During fiscal year 1997, the Company agreed to
extend the exercise period of warrants to acquire 431,799 shares of the
Company's common stock held by Joe K. Johnson, a director of the Company until
July 17, 1997. The warrants are now exercisable until June 30, 1999 as follows:
(i) warrants to purchase 110,250 shares at $7.00 per share; (ii) warrants to
purchase 71,332 shares at $10.00 per share; (iii) warrants to purchase 65,215
shares at $15.00 per share; and (iv) warrants to purchase 185,002 shares at
$30.00 per share. Prior to the extension granted by the Company, the warrants
were to expire on December 31, 1998.
Employment Agreements. The Company has entered into employment
agreements with Messrs. Cook, Sorenson, Kimball and Stewart which provide for
significant benefits. See "Employment Contracts and Termination of Employment
and Change in Control Arrangements for fiscal year 1997."
$500,000 Loan from Certain Officers. In November 1996, Steven R. Brown
loaned $280,000 and Asael T. Sorensen, Jr. loaned $220,000 to the Company which
accrues interest at approximately prime plus 2% per annum. Principal and
interest is due on or before November 26, 2002. As of July 20, 1998,
approximately $353,412 has been paid by the Company toward the repayment of the
loans. The purpose of the loans were to provide operating capital for the
Company.
Related Partnerships. In June 1996, the Company formed US #1 and AS #1,
for the purpose of facilitating the financing and construction of the Utah Plant
and the Alabama Plant, respectively. Mr. Russell Madsen, Mr. Dean Young, Mr.
Kenneth M. Young, Mr. Alan D. Ayers, Mr. Asael T. Sorensen, Jr., Mr. Steven R.
Brown, and Mr. Michael Q. Midgley (former and current officers and directors of
the Company) acquired interest in US #1 and AS #1. Their aggregate interests
represent approximately 8.1% of the capital profits of US #1, and 0.6% of the
capital profits of AS #1. See "Key Bank Loan" below. In connection with the sale
of the Utah Plant under the Utah Purchase Agreement, the Company transferred the
Utah Plant to US #1 and granted US #1 a non-exclusive license to the Briquetting
Technology. In exchange for the transfer of the Utah Plant and license granted
by the Company, the Company received a payment of $500,000 from US #1. These
transactions are not based on an arms-length negotiation by the parties. The
Company has retained a 63% interest in US #1 and a 74% interest in AS #1 and
privately placed the remaining partnership interests in the Partnerships. The
limited partners paid $3,277,500 for the remaining partnership interests in US
#1 and $2,062,500 for the remaining partnership interests in AS #1. (See "ITEM
1. BUSINESS--The Company--Partnerships" and "ITEM 1. BUSINESS-The
Company--Alabama Plant, --Utah Plant" in the 10-K.)
Key Bank Loan. In an effort to obtain capital for the construction of
the Utah Plant and the Alabama Plant, the Company borrowed $700,000 from Key
Bank of Utah ("Key Bank"). The loan accrued interest at Key Bank's prime rate
plus 2% per annum and was to be paid in full in October 1996. In November 1996
the Company paid accrued interest plus principal of $100,000. The Company and
Key Bank agreed to rollover the remaining $600,000 principal balance of the loan
for another 90 days, until January 29, 1997, which was later extended until May
30, 1997. Additional payments of principal and interest were paid in March and
May, 1997 totaling $110,000. Key Bank thereafter notified the Company that it
was in default on the loan. The Company paid off the principal and interest on
the loan in the amount of $522,516 on August 20, 1997. As a condition to making
the loan, Key Bank required that certain officers, directors and employees of
the Company also sign as guarantors of the note evidencing the loan (the "Key
Bank Note"). To induce such officers, directors and employees to sign
16
<PAGE>
individually and be severally liable on the Key Bank Note, the Company loaned
$100,000 each to Mr. Russell G. Madsen, Mr. Dean Young, Mr. Kenneth M. Young,
Mr. Alan D. Ayers, Mr. Asael T. Sorensen, Jr., Mr. Steven R. Brown and Mr.
Michael Q. Midgley (the "Individuals"). The loan to the Individuals is on the
same terms as the loan from Key Bank. The proceeds of the loan from the Company
to the Individuals, along with other money of the Individuals aggregating
$1,850,000, were invested in partnership interests in US #1 and AS #1. Mr.
Russell G. Madsen invested $50,000 of the loan in AS #1 and $50,000 of the loan
in US #1. The remaining Individuals invested the full amount of their respective
loans in US #1. The Company has not received any direct payments from the
Individuals. On March 21, 1997, US #1 made cash distributions to each of the
limited partners of US #1 in the aggregate amount of $272,000. The cash
distributions attributable to the interests in US #1 acquired through the loan
to the Individuals as described above were made directly to the Company and
applied against the principle and interest due from the Individuals. Future
distributions, if any, from US #1 will be applied first against the amounts
owing from the Individuals before distributions are made directly to the
Individuals.
Settlement Agreement with Former CEO. In November of 1996, the Company
entered into a settlement agreement with Kenneth M. Young, the Company's former
Chief Executive Officer and Chairman of the Board. Pursuant to the settlement
agreement, the Company agreed: (i) to pay Mr. Young $4,000 twice a month through
December 31, 1996, (ii) to pay $25,030 in deferred compensation over 24
semi-monthly installments of $1,042 beginning January 1, 1997, (iii) to pay for
Mr. Young's medical insurance until December 31, 1997, (iv) to pay $2,500
semi-monthly for 24 payments beginning January 1, 1997 in consideration for
consulting services reasonably requested by the Company and Mr. Young's
agreement to refrain from any activities in competition with the Company, (v) to
allow options representing 50,000 shares of Company common stock at $1.50 per
share to become fully vested on January 1, 1997 (these options were originally
issued under a stock option agreement dated January 1, 1995 relating to 250,000
shares of which the remaining 200,000 options were rescinded) and (vi) to allow
options representing 50,000 shares of Company common stock at $1.50 per share to
become fully vested on January 1, 1997 (these options were originally issued
under a stock option agreement dated January 1, 1995 relating to 62,500 shares,
of which the remaining 12,500 options were rescinded).
Settlement Agreement with Former Officer. In November of 1996, the
Company entered into a settlement agreement with Michael Q. Midgley, formerly
the Company's President and Chief Financial Officer. Pursuant to the settlement
agreement, the Company agreed: (i) to pay $20,000 in November 1996 and $38,479
in salary, deferred compensation and unused vacation pay over 24 semi-monthly
installments of $1,605 beginning November 15, 1996, (ii) to pay $2,500
semi-monthly for 24 payments beginning January 1, 1997 in consideration for
consulting services reasonably requested by the Company and Mr. Midgley's
agreement to refrain from any activities in competition with the Company, (iii)
to allow options representing 50,000 shares of Company common stock at $1.50 per
share to become fully vested on January 1, 1997 (these options were originally
issued under a stock option agreement dated January 1, 1995 relating to 350,000
shares of which the remaining 300,000 options were rescinded) and (iv) to allow
options representing 25,000 shares of Company common stock at $1.50 per share to
become fully vested on January 1, 1997 (these options were originally issued
under a stock option agreement dated January 1, 1996 relating to 50,000 shares,
of which the remaining 25,000 options were rescinded).
Ferro Resources. Max E. Sorenson, a Vice President of the Company,
beneficially owns Ferro Resources, L.L.C., a Utah limited liability company
("Ferro"). In December 1996, the Company together with Ferro, entered into
binding contracts with a third-party contractor for the construction of two
briquetting facilities with a production capacity of 360,000 tons annually per
plant (the "Ferro/Company Construction Contracts"). Under the terms of the
arrangement, Ferro was to develop the projects and the Company was to provide
the Briquetting Technology. The net proceeds of the projects were to be shared
equally by the Company and Ferro. The Company and Sorenson have entered into
discussions regarding the sale of the membership interests in Ferro for $10,000
plus a percentage of income from the projects constructed under the
Ferro/Company Construction Contracts. Under the proposed terms of the agreement,
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Mr. Sorenson has the opportunity to receive up to $1,500,000 over a period of up
to ten years based upon performance factors of the specified projects. The
Company's purpose for entering into such an agreement is to obtain all right,
title and interest in the two Ferro/Company Construction Contracts. Given the
preliminary nature of the discussions with Ferro, the terms described above may
vary from the terms of the definitive agreement, if consummated. These
transactions are not based on an arms-length negotiation by the parties. (See
"ITEM 1. BUSINESS--Business of Company--Joint Ventures--Ferro" and "ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" in the 10-K.)
The Company is working with other parties in the financing and
developing of the projects that will be constructed under the Ferro/Company
contracts. If the facilities are not constructed, the Company is liable for
liquidated damages in the amount of 6% of the maximum contract price, or
approximately $636,000 in total. The Company can give no assurance that the
facilities will be constructed or that, if constructed, the facilities will
operate at estimated capacity.
Option Exercise Notes. In fiscal year 1995, the Company entered into
loan agreements with 16 current and former employees of the Company in payment
of the exercise price of options to purchase 900,000 shares of Company common
stock. Out of the 16 individuals, 9 are current or former officers and directors
in fiscal year 1997. Specifically Messrs. Madsen, Ford, Brown, Weller, Sorensen,
Ayers, Lambert, Young and Midgley are indebted to the Company in the principal
amounts of $516,875, $488,519, $388,519, $417,265, $322,503, $251,250, $279,318,
$587,765 and $516,875 respectively. The promissory notes bear interest at 5.7%
per annum with principal and interest due in December 2000 and are
collateralized by the shares purchased. As of July 20, 1998, The Company had
received approximately $298,828 toward repayment the loans.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the National Association of Securities Dealers. Officers, directors, and
greater than ten-percent stockholders are required by Securities and Exchange
Commission regulations to furnish the Company with copies of all Section 16(a)
forms they file. Based solely on a review of the copies of such forms furnished
to the Company between October 1, 1996, and September 30, 1997, on year-end
reports furnished to the Company after September 30, 1997, and on
representations that no other reports were required, the Company has determined
that during the 1997 fiscal year all applicable 16(a) filing requirements were
met except as follows:
Russell G. Madsen, a Vice President of the Company, acquired an option
to purchase 25,000 shares of Common Stock of the Company on August 13, 1996. Mr.
Madsen filed a Form 4 reporting the transaction on September 18, 1996. The Form
4 should have been filed on or before September 10, 1996. Additionally, Mr.
Madsen disposed of 40,000 shares in January 1997 and disposed of 1,340 shares in
February 1997. Mr. Madsen filed Form 4's to report the transactions on December
29, 1997. The Form 4's should have been filed on or before February 10 and March
10, 1997, respectively.
George W. Ford, Jr., Vice President of Research and Development of the
Company, acquired an option to purchase 25,000 shares of Common Stock of the
Company on August 13, 1996. Mr. Ford filed a Form 4 reporting the transaction on
September 18, 1996. The Form 4 should have been filed on or before September 10,
1996. Mr. Ford disposed of 18,000 shares and acquired 100,000 shares through the
exercise of options in November 1996 and filed a Form 4 reporting such
transaction on December 18, 1996. The Form 4 should have been filed on or before
December 10, 1996. Additionally, Mr. Ford disposed of 3,000 shares in March of
1997, disposed of 7,000 shares in April of 1997, disposed of 9,000 shares in May
of 1997, disposed of 1,000 shares in June of 1997, disposed of 3,000 shares in
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<PAGE>
July of 1997, and disposed of 10,000 shares in October of 1997. Mr. Ford filed
Form 4's to report the transactions on December 29, 1997. The Form 4's should
have been filed on or before April 10, May 10, June 10, July 10, August 10, and
November 10, 1997, respectively.
Michael Q. Midgley, formerly an officer and Director of the Company,
acquired options to purchase 300,000 shares of Common Stock of the Company on
August 13, 1996. Mr. Midgley filed a Form 4 to report the transaction on
September 18, 1996. The Form 4 should have been filed on or before September 10,
1996.
Kenneth M. Young, formerly an officer and Director of the Company,
acquired options to purchase 70,000 shares of Common Stock of the Company on
August 13, 1996. Mr. Young filed a Form 4 to report the transaction on September
18, 1996. The Form 4 should have been filed on or before September 10, 1996.
Max E. Sorenson was appointed Vice President of the Company effective
April 1, 1997, and thereby became subject to Section 16(a) reporting
requirements. Mr. Sorenson also acquired options to purchase 100,000 shares of
Common Stock of the Company. Mr. Sorenson did not file a timely Form 3. Mr.
Sorenson filed a Form 5 reporting both the holdings required to be reported on
Form 3 and the acquisition of the options on November 25, 1997. The Form 5
should have been filed on or before November 14, 1997.
Asael T. Sorensen, Jr., Secretary and General Counsel of the Company,
acquired 1,000 shares of Common Stock of the Company on April 24, 1997. The
acquisition should have been reported on a Form 4 for April 1997 and filed on or
before May 10, 1997. Mr. Sorensen filed a Form 5 reporting the transaction on
December 29, 1997. The Form 5 should have been filed on or before November 14,
1997. Additionally, Mr. Sorensen acquired options to purchase 100,000 shares of
Common Stock of the Company on August 13, 1996. Mr. Sorensen filed a Form 4 to
report the transaction on September 18, 1996. The Form 4 should have been filed
on or before September 10, 1996.
DeLance W. Squire, a Director of the Company, was appointed a Director
of the Company and received options to acquire 2,500 shares on December 13,
1996. He filed a Form 3 reporting the holdings on January 21, 1997. The Form 3
holdings should have been reported on a Form 3 filed on or before December 23,
1996.
Dee J. Priano, a Vice President of the Company, filed a Form 5 to
report Form 3 holdings as a result of being appointed an officer of the Company
and the acquisition of options to acquire 100,000 shares on August 1, 1997. The
Form 5 was filed on December 29, 1997. The Form 5 should have been filed on or
before November 14, 1997. The Form 3 holdings should have been reported on a
Form 3 filed on or before August 10, 1997.
Vern T. May, a Director of the Company, filed a Form 5 to report Form 3
holdings as a result of being appointed a Director of the Company and the
acquisition of options to acquire 2,500 shares. The Form 5 was sent for filing
on or about January 13, 1998. The Form 5 should have been filed on or before
November 14, 1997. The Form 3 holdings should have been reported on a Form 3
filed on or before February 20, 1997.
James A. Herickhoff, a Director of the Company, filed a Form 5 to
report Form 3 holdings as a result of being appointed a Director of the Company
and the acquisition of options to acquire 2,500 shares. The Form 5 was sent for
filing on or about January 13, 1998. The Form 5 should have been filed on or
before November 14, 1997. The Form 3 holdings should have been reported on a
Form 3 filed on or before August 25, 1997.
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<PAGE>
John P. Hill, Jr., a Director of the Company, filed a Form 5 to report
Form 3 holdings as a result of being appointed a Director of the Company and the
acquisition of options to acquire 2,500 shares. The Form 5 was sent for filing
on or about January 13, 1998. The Form 5 should have been filed on or before
November 14, 1997. The Form 3 holdings should have been reported on a Form 3
filed on or before October 15, 1997.
Richard C. Lambert, a former officer of the Company, acquired options
to purchase 20,000 shares of Common Stock of the Company on August 13, 1996. Mr.
Lambert filed a Form 4 to report the transaction on September 18, 1996. The Form
4 should have been filed on or before September 10, 1996.
Raymond J. Weller, a Director of the Company, acquired options to
purchase 25,000 shares of Common Stock of the Company on August 13, 1996. Mr.
Weller filed a Form 4 to report the transaction on September 18, 1996. The Form
4 should have been filed on or before September 10, 1996.
Steven R. Brown, Vice President of Synfuel Operations and Engineered
Fuels of the Company, acquired options to purchase 100,000 shares of Common
Stock of the Company on August 13, 1996. Mr. Brown filed a Form 4 to report the
transaction on September 18, 1996. The Form 4 should have been filed on or
before September 10, 1996.
Alan D. Ayers, Vice President of Administration of the Company,
acquired options to purchase 100,000 shares of Common Stock of the Company on
August 13, 1996. Mr. Ayers filed a Form 4 to report the transaction on September
18, 1996. The Form 4 should have been filed on or before September 10, 1996. He
also sent Form 5 for filing on or about January 13, 1998 to report Form 3
holdings as a result of being appointed an officer of the Company. The Form 3
should have been filed on or before August 10, 1996.
Stanley M. Kimball, the President and a Director of the Company, filed
a Form 3 on January 21, 1997. The Form 3 should have been filed on or before
January 11, 1997. Mr. Kimball acquired options to purchase 50,000 shares of
Common Stock of the Company on April 1, 1997. He sent for filing on or about
January 13, 1998 a Form 5 reporting the acquired options. The Form 5 should have
been filed on or before November 14, 1997.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
Nominees for Election as Directors
At the Meeting, the stockholders will elect all Class I directors to
hold office until the annual meeting of stockholders in 2001, the expiration of
their term, or until their respective successors are duly elected and qualified.
The Board of Directors is divided into three classes, currently comprised of two
Class I directors, whose terms will expire at the Meeting, two Class II
directors, whose terms will expire at the Company's annual meeting in 1999, and
two Class III directors, whose terms will expire at the Company's annual meeting
in 2000. The Board currently consists of six members: Raymond J. Weller, Brent
M. Cook, Stanley M. Kimball, DeLance M. Squire, John P. Hill, Jr., and James A.
Herickhoff. The Board proposes that the two individuals listed below as nominees
be elected as Class I directors of the Company. Each nominee has consented to
serve if elected to the Board. In the event that any nominee is unable to serve
as a director at the time of the Meeting (which is not expected), proxies with
respect to which no contrary direction is made will be voted "FOR" such
substitute nominee as shall be designated by the Board to fill the vacancy.
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The names of the nominees, together with certain information about them
are set forth below:
Name Age Position(s) with the Company Director Since
John P. Hill, Jr. 37 Director 1997
James A. Herickhoff 56 Director 1997
John P. Hill, Jr. has served as a Director since September 1997. Mr. Hill is the
president of Quince Associates, a closely held investment company. Since 1989,
Mr. Hill has also served as President of Trans Pacific Stores, Ltd., a privately
held operator of retail stores. Prior to 1989, Mr. Hill was the Chief Financial
Officer for various privately held retail and restaurant companies. Mr. Hill
received a Bachelor of Science degree in Accounting from the University of
Maryland and became a Certified Public Accountant in 1984.
James A. Herickhoff has served as a Director since August 1997. Mr. Herickhoff
is and has been a corporate consultant since 1994, and from 1987 to 1994 he
served as President of Atlantic Richfield Company's Thunder Basin Coal Company.
Mr. Herickhoff has over 25 years of experience in the coal and mining industries
and extensive experience in strategic positioning of these companies for
long-term growth and competitiveness. Mr. Herickhoff led the growth of the Black
Thunder and Coal Creek coal mines from 19,000,000 to approximately 40,000,000
tons per year of production. Mr. Herickhoff previously served as President of
Mountain Coal Company, managing all of the ARCO's underground mining and
preparation plants. Mr. Herickhoff is the past President of the Wyoming Mining
Association and a former Board member of the Colorado and Utah Mining
Associations. Mr. Herickhoff received his Bachelor degree in 1964 from St.
John's University, a Master of Science degree in 1966 from St. Cloud State
University and attended the Kellogg Executive Management Institute at
Northwestern University in 1986.
21
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The names of the Class II Directors, together with certain information
about them are set forth below:
Name Age Position(s) with the Company Director Since
---- --- ---------------------------- --------------
Raymond J. Weller 50 Director 1991
DeLance M. Squire 77 Director 1996
Raymond J. Weller has served as a Director of the Company since July 1991 and
served as Chairman of the Board from January 1997 through July, 1998. Since
1991, Mr. Weller has been Vice President of HMO Benefits of Utah, a Utah based
insurance brokerage firm. From 1985 to 1991, Mr. Weller was an agent with the
insurance brokerage of Galbraith, Benson, and McKay. Mr. Weller is a Class II
director, his term expires in 1999.
DeLance M. Squire has served as a Director of the Company since December 13,
1996. Currently Mr.Squire is President of Management and Professional Inc. Mr.
Squire was the founder of Squire & Co., Orem, Utah and retired in 1986. From
1986 until 1987, Mr. Squire served as the Executive Director for the Commission
for Economic Development, Orem, Utah. Mr. Squire was previously the mayor of the
City of Orem, Utah. In addition, Mr. Squire is a member of the Impact Fees
Committee and the Strategic Plan Committee to the City of Orem. He also serves
as a member of the board of trustees for Mountain View Hospital, Payson, Utah.
Mr. Squire received his B.S. degree in Accounting from Brigham Young University
in 1947 and became a Certified Public Accountant in 1950. Mr. Squire is a Class
II director, his term expires 1999.
The names of the Class III directors, together with certain information
about them are set forth below:
Name Age Position(s) with the Company Director Since
Brent M. Cook 36 Chief Executive Officer and 1996
Chairman of the Board
Stanley M. Kimball 44 Director and President 1997
Brent M. Cook has served as Chief Executive Officer since October 1996, Chairman
of the Board since July 1998, and Director since June 1996. Mr. Cook has also
previously held the positions of President from October 1996 until July 1998 and
Chief Financial Officer from June 1996 until December 1996. As Chief Executive
Officer, Mr. Cook is responsible for the governance of the Company, the
strategic direction of the Company and the execution of the corporate mission.
Mr. Cook is a Certified Public Accountant. Prior to joining the Company, Mr.
Cook was Director of Strategic Accounts for PacifiCorp, Inc. His
responsibilities included the management of revenues of approximately
$128,000,000 per year, and seeking out and evaluating strategic growth
opportunites for PacifiCorp, including joint ventures and other transactions.
Mr. Cook spent more than 12 years with PacifiCorp. Although PacifiCorp is not
affiliated with the Company, it is a shareholder of the Company and its
affiliates - - PacificCorp Syn Fuel, LLC, an Oregon limited liability company,
and Birmingham Syn Fuel, LLC, an Oregon limited liability company - - have
entered into purchase agreements and license agreements with the Company and an
affiliate of the Company for the purchase of a coal briquetting plant located in
Birmingham, Alabama. Mr. Cook is a Class III Director, his term expires in 2000.
22
<PAGE>
Stanley M. Kimball has served as President of the Company since July 1998,
Director since January 1, 1997 and Chief Financial Officer from January 1997
until July 1998. As President, Mr. Kimball will be responsible for overseeing
senior management in the execution of the Company's business plan. Prior to
joining the Company, Mr. Kimball was employed by Huntsman Corporation ("HC").
From 1989 to early 1995, Mr. Kimball served as the Director of Tax for Huntsman
Chemical Corporation ("HCC"). In May 1995, Mr. Kimball was appointed as an
officer of HC, serving as Vice President, Tax. In July 1995, Mr. Kimball was
appointed as Vice President, Administration for HC. In this position, he had
numerous responsibilities, both for HC and for Mr. Jon M. Huntsman personally,
which included financial accounting, tax and estate planning, and cash and
investment management. In this position, Mr. Kimball also served as Mr.
Huntsman's Chief of Staff. In 1980, Mr. Kimball received a Masters of
Accountancy, with emphasis in taxation, from Brigham Young University and is a
Certified Public Accountant. Between 1980 and 1989, he was employed by Arthur
Andersen & Co., and was serving as a Senior Tax Manager prior to his employment
with HCC. Mr. Kimball is a Class III Director, his term expires in 2000.
THE BOARD RECOMMENDS A VOTE "FOR" THE ELECTION
OF MESSRS. HILL AND HERICKHOFF
23
<PAGE>
PROPOSAL NO. 2 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board has appointed PricewaterhouseCoopers, LLP, certified public
accountants, as auditors to examine the financial statements of the Company for
Fiscal 1998 and to perform other appropriate accounting services and is
requesting ratification of such appointment by the stockholders.
PricewaterhouseCoopers, LLP (formerly Coopers & Lybrand L.L.P.)has served as the
Company's auditors since 1996.
In the event that the stockholders do not ratify the appointment of
PricewaterhouseCoopers, LLP, the adverse vote will be considered as a direction
to the Board to select other auditors for the next fiscal year.
It is understood that even if the selection of PricewaterhouseCoopers,
LLP is ratified, the Board, in its discretion, may direct the appointment of a
new independent accounting firm at any time during the year if the Board feels
that such a change would be in the best interests of the Company and its
stockholders.
A representative of PricewaterhouseCoopers, LLP is expected to attend
the Meeting and will have an opportunity to make a statement if he desires to do
so and to respond to appropriate questions.
THE BOARD DEEMS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS
OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS
A VOTE "FOR" APPROVAL THEREOF
STOCKHOLDER PROPOSALS
Stockholders may submit proposals on matters appropriate for
stockholder action at the Company's annual meetings consistent with regulations
adopted by the SEC. For such proposals to be considered for inclusion in the
proxy statement and form of proxy relating to the 1999 annual meeting, they must
be received by the Company not later than December 30, 1998, or such later date
as the Company may specify in its SEC filings. Such proposals should be
addressed to the Company at 3280 North Frontage Road, Lehi, Utah 84043, Attn:
Corporate Secretary.
It is anticipated that proxies solicited in connection with the
Company's 1999 annual meeting will confer discretionary authority to vote on
matters, among others, of which the Company does not receive notice prior to
June 19, 1999.
OTHER MATTERS
Management does not intend to present, and has no information as of the
date of preparation of this Proxy Statement that others will present, any
business at the Meeting other than business pertaining to matters required to be
set forth in the Notice of Annual Meeting and Proxy Statement. However, if other
matters requiring the vote of the stockholders properly come before the Meeting,
it is the intention of the persons named in the enclosed proxy to vote the
proxies held by them in accordance with their best judgment on such matters.
24
<PAGE>
SOLICITATION OF PROXIES
The accompanying form of proxy is being solicited on behalf of the
Board. The expense of solicitation of proxies for the Meeting will be paid by
the Company. In addition to the mailing of the proxy material, such solicitation
may be made in person or by written communication, telephone or telegraph by
directors, officers or employees of the Company or its subsidiaries.
ANNUAL REPORT ON FORM 10-K
CERTAIN PORTIONS OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
FISCAL YEAR ENDED SEPTEMBER 30, 1997, AS REFERENCED IN THIS PROXY STATEMENT, ARE
INCORPORATED HEREIN BY REFERENCE. THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO
EACH PERSON SOLICITED BY THIS PROXY STATEMENT, ON THE WRITTEN REQUEST OF ANY
SUCH PERSON, A COPY OF THE ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDING
SEPTEMBER 30, 1997, FINANCIAL STATEMENTS, EXHIBITS AND SCHEDULES THAT ARE
ATTACHED TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR ITS MOST RECENT FISCAL YEAR. SUCH WRITTEN
REQUEST SHOULD BE DIRECTED TO THE INVESTOR RELATIONS DEPARTMENT AT THE ADDRESS
OF THE COMPANY APPEARING ON THE FIRST PAGE OF THIS PROXY STATEMENT OR FAXED TO
THE COMPANY AT (801) 768-4483.
By Order of the Board of Directors,
ASAEL T. SORENSEN, JR.
Secretary
THE BOARD ENCOURAGES STOCKHOLDERS TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO COMPLETE, DATE
AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE.
STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR SHARES PERSONALLY EVEN THOUGH
THEY HAVE SENT THEIR PROXIES.
25
<PAGE>
COVOL TECHNOLOGIES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS
THURSDAY, AUGUST 27, 1998
The undersigned stockholder(s) of Covol Technologies, Inc., a Delaware
corporation (the "Company"), revoking all previous proxies, hereby appoints
Asael T. Sorensen and Harlan M. Hatfield and each of them acting individually,
as the attorneys and proxies of the undersigned, with full power of
substitution, to cast all votes for all shares of Common Stock of the Company
which the undersigned would be entitled to cast if personally present at the
Annual Meeting of Stockholders of the Company to be held at the DoubleTree
Hotel, 255 South West Temple, Salt Lake City, Utah 84101, on Thursday, August
27, 1998, at 1:00 p.m., Mountain Daylight Time, and any and all adjournments or
postponements thereof. Said proxies are authorized and directed to vote as
indicated with respect to the following matters:
(Please date and sign below)
Please mark your vote as this |X|
1. ELECTION OF DIRECTORS
James A. Herickhoff FOR |_| WITHHOLD |_|
(If elected, Mr. Herickhoff's term would AUTHORITY
expire 2001)
John P. Hill, Jr. FOR |_| WITHHOLD |_|
(If elected, Mr. Hill's term would expire AUTHORITY
2001)
2. RATIFY THE SELECTION BY THE BOARD FOR |_| AGAINST |_|
OF PricewaterhouseCoopers, LLP AS ABSTAIN |_|
INDEPENDENT AUDITORS OF THE
COMPANY FOR THE 1998 FISCAL YEAR
This Proxy is solicited on behalf of the Board of Directors. Unless otherwise
specified, the shares will be voted "FOR" items 1 and 2. This Proxy also
delegates discretionary authority to the proxies to vote with respect to any
other business which may properly come before the 1998 Annual Meeting of
Stockholders and any and all adjournments or postponements thereof to the extent
allowed by Rule 14a-4(C) as promulgated by the U.S. Securities and Exchange
Commission.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING,
PROXY STATEMENT AND ANNUAL REPORT OF COVOL TECHNOLOGIES, INC.
Dated: ________________________________, 1998
- ---------------------------------------------
Signature of Stockholder
- ---------------------------------------------
Signature of Stockholder
NOTE: Please date and sign this Proxy exactly as the names appear hereon. When
signing as attorney-in-fact, executor, administrator, trustee or guardian,
please add your title as such. Proxies executed in the name of a corporation
should be signed on behalf of the corporation by a duly authorized officer.
Where shares are owned in the name of two or more persons, all such persons
should sign.
PLEASE RETURN YOUR COMPLETED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE
26
